iPhone maker Foxconn’s cautious pivot to India shows limits of ‘China plus one’
iPhone maker Foxconn’s cautious pivot to India shows limits of ‘China plus one’

Two weeks ago, when Foxconn Chairman Liu Yang was in Tamil Nadu to discuss more investment by the iPhone maker in the southern Indian state, two ministers from neighboring Karnataka approached him for their own meeting , and later produced documents claiming that Foxconn also intends to build two factories. factories in their states.

While Foxconn insists it has not committed to any projects, lobbying by the Karnataka state government suggests a fierce race is brewing in India to attract the world’s largest electronics giant as Apple and other tech companies diversify away from China. More investment by contract manufacturers of products. .

Foxconn’s re-entry into India is being driven by multinationals’ desire for a “China plus one” strategy following supply chain disruptions and geopolitical tensions between Washington and Beijing. Foxconn first invested in India 15 years ago, but still only employs about 50,000 people there. Its 1 million employees worldwide.

In recent months, the group has broken ground on a factory near Hyderabad, the capital of Telangana state, that government officials say will make smart headphones, and it has also bought near the airport in Bengaluru, the capital of Karnataka state. acquired land for the construction of an iPhone factory. Another factory near Hyderabad and two others in Karnataka state are in the planning stages, according to internal Foxconn presentations reviewed by the Financial Times.

Foxconn said on Monday it expects a slight decline in revenue this year, rather than flat growth, as it reported a 1 percent drop in second-quarter net profit from a year earlier.

But Liu also told investors that the company expects to invest “billions of dollars” in India, starting next year in Karnataka, Telangana and Tamil Nadu, its largest existing iPhone assembly centers. ) produces key components for consumer electronics and some electric vehicle components.

“Since 2018, there has been this move to try to create a more geographically diverse technology supply chain,” said Gokul Hariharan, JPMorgan’s head of technology research in Asia. “During the pandemic, we’ve seen some of these things get delayed. But Since last year, things have started to normalize and diversity has strengthened.”

Foxconn's investment in India

India currently accounts for $10 billion in Foxconn’s annual revenue, according to reports. That represents 4.6% of the company’s $216 billion in revenue in 2022, more than double the 2% it will generate in 2021.

Still, the move into India has exposed the limits of Foxconn’s willingness and ability to diversify. Foxconn executives and other observers dismissed expectations that India could be close to China’s role as a global technology manufacturing hub.

“China can still supply the U.S. and many other foreign markets,” said a Foxconn executive. “In India, it makes sense to build a supply chain to cater to the growing domestic market – it can then become a production base for limited regional markets around India.”

China business accounts for 75% of Foxconn’s global business, up from 70% before the pandemic, Liu said. He gave no target for a more spread out footprint, reflecting an apparent wariness towards India.

According to Foxconn’s internal introduction, the company currently has 9 parks and 36 factories in India. Its operations, mainly in the states of Tamil Nadu and Andhra Pradesh, make smartphones, feature phones (phones with fewer features than a smartphone), televisions and set-top boxes for clients such as Sony, Xiaomi and Apple.

In a domestic market dominated by Chinese-made feature phones and Android phones, Indians have started buying up premium iPhones in bulk. Apple this year opened its first two stores in the country, in Mumbai and New Delhi.

For Narendra Modi’s government, electronics are a key component of its “Make in India” initiative, which seeks to increase investment in the country’s chronically underperforming manufacturing sector. India is offering billions of dollars worth of production-linked incentives (PLIs) to investors in order to secure more factory jobs that have flowed for decades to export-oriented economies in China and Southeast Asia.

But a person close to Foxconn said subsidies in India were hard to come by. “Funds under the PLI are only paid out based on the previous year’s shipments, and even under new policies that allow subsidies to be paid up front, such as semiconductor companies, many companies are not eligible,” the person said.

The deal between Foxconn and Indian resource group Vedanta last year is one example. The companies said they intend to set up a semiconductor and display production base in Modi’s home state of Gujarat.

However, Foxconn cut off its partnership with the debt-laden Indian company last month after the two failed to secure government approval for chip-making subsidies. Both companies said they intend to reapply individually under the government’s revised call for projects.

Executives have said privately that subsidies are a deciding factor in any new project. People familiar with the company’s decision-making said Foxsemicon, the group’s chip tools subsidiary, may consider setting up a factory in Bengaluru if the level of budgetary support is right.

Foxconn is also exploring electric vehicle opportunities in India. While the company’s hopes for future growth and higher profits rest in this area, executives believe it will be years before the market matures enough to justify a major move.

That leaves behind the group’s traditional main business, smartphone manufacturing.

Liu said on Monday that Foxconn would help bring smaller suppliers to India by developing more large industrial parks.

But people familiar with the company’s plans say that production of smartphone components in India will now largely be limited to Foxconn Group Co., as a large part of the Chinese supply chain is made up of Chinese producers, which have struggled to gain access to India.

Another big question is how far Foxconn can make its Indian operations cost-effective, which is crucial for businesses with thin margins. Industry executives say no other newer production base, whether in India or Vietnam, can accommodate a single campus of 100,000 workers like Foxconn’s in China, arguing that most Indian workers refuse to leave their homes. Work and live in dorms.

As Apple pushes for faster production growth, Foxconn is testing the limits of those assumptions, expanding 24 existing dorms and building new ones. While it is “unlikely” that any one campus in India will accommodate 100,000 or more employees, with a network of bases located within close proximity to each other, there is plenty of room to scale, at least in part, said a person familiar with its India operations. Base staff live on site.

Still, analysts say that would come at a high cost, and even then, there would be limitations.

“China will remain a major sales destination for high-volume consumer goods,” said JPMorgan’s Hariharan. “They might add a location or two for different products, but we’re not going to get another big center — it’s probably not feasible.”

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